These stories are about a changing world where legacy and incumbent organizations are being challenged by a new wave of providers who have compelling narratives that speak to our own changing experiences at work, at home, and in society at large. This examine the transition and restructuring of trust and expectations that are taking place in all sectors, public and private, personal and social. This restructuring is the compelling narrative of our time.

Three strategic shifts come through the analysis:

• Legacy ‘horizontal’ providers who seek to own a customer and service all their needs are being out-maneuvered by more agile, and focused ‘vertical’ providers who do one thing, in more places, at scale; we call the resulting competitive market dynamic compression.

• We are witnessing massive regime change, with legacy organizations leadership teams reaching limits of the horizontal model, while the new Founders of the Vertical are building out into market adjacencies due to a combination of long-term vision, canny de leveraging of risk, and aggressive real-time externalization of business processes to the ecosystem.

• These two trends ride the rails of changing usage patterns that are not restricted to ‘GenX’ or ‘users’ in the conventional sense. There’s a reason what so many incumbent companies are losing their way: they are focused on existing usage patterns that are being replaced every nine months. They miss the strong correlation between the rate of innovation/iteration, and scale.

The clear call to action for organizations who wish to flourish in this environment is to embrace the reality of multiple vertical resources in a fragmenting marketplace. These choices are being led by its employees, partners, and audiences in a push-button, on-demand world. The story is just beginning.

Mark Plakias

VP, Knowledge Transfer

Orange Silicon Valley

Acknowledgements

This publication exemplifies the spirit of externalization. Core to the ideas in it are the key frameworks of John Hagel’s thinking around ‘narratives’ and Haydn Shaughnessy’s work on ‘radical adjacency.’ We’d like to thank John Hagel and Haydn Shaughnessy for their insightful interviews. We are constantly inspired by their provocative rethinking of the evolution of the enterprise. There were several colleagues from Orange Silicon Valley who we would also like to thank for their contributions to this report: Subash Mandanapu, Jameson Buffmire, Asha Vellaikal, Elliott Chin, Santhana Krishnasamy, and Ashish Patel. In addition, our talented designers, Sean Murray and Cesar Sanchez, deserve recognition for their spot-on graphic interpretations. We’d like to acknowledge here the ongoing support and collaboration of all our colleagues at Orange Business services, who provide the most valuable support of all by bringing Orange’s leading enterprise customers and partners to our Center for briefings and exchanges — this kind of feedback is invaluable. The narratives for many companies have yet to be written. We hope that this report encourages them to actively think about their own narrative arc with the profound understanding of, as Haydn Shaughnessy puts it, “change is not only fast, it is wide ranging.”

The Editors

Georges Nahon, Mark Plakias, & Natalie Quizon

More to Come:

Embracing the Combinatorial Enterprise

At the beginning of this collection of stories, we asked:

What kind of companies are gaining influence (and which are losing it)?

Another question we asked is closely related:

Where is market value being eroded or transferred to new players?

Every day, we see more examples of dramatic shifts in both influence and market value: to use the $1 trillion communications business as an example, just two companies Apple and Samsung, control virtually all of the operating income in the mobile handset business, just a few years after entering a market controlled by incumbents now either up for sale, sold, or waning in influence. Here we can define influence at the operating system level (iOS and Android), because the developer ecosystem of the device directly translates into market influence.

The core concept of externalization – making the business accessible to ecosystems and audiences via APIs, platforms, and services – creates nearly frictionless opportunities for new combinations. Companies who can embrace this model are what we are calling here the combinatorial enterprise.

Other examples of combinatorial enterprises have blossomed in recent years and scaled with amazing power:

• Kickstarter and Indiegogo: crowdfunding new product development

• Lyft: Over 1 million rides via this ride-sharing service

• Kaggle: Problem-solving via 1 million Data Scientists

As the interview with Haydn Shaughnessy tells us, there is a strong competitive advantage for the Combinatorial Enterprise. Leveraging ecosystems to drive functions previously viewed as ‘core’ processes (managed internally at great cost and slow speeds), liberates management to do what is really needed, which is find relevant adjacencies and move into these new market segments at speed, and with scale. This is critical, because as Shaughnessy reminds us: “executive mindshare is still the key component.”

Old (Horizontal) Combines vs New (Vertical) Combine

The old definition of ‘combine’ in business school class was the conglomerate. A corporate ‘combine’ was a horizontal mashup of disparate businesses to offset risk via a diversified portfolio. For CEOs trained in this model, the key skill-sets are: command-and-control, cost-reduction for margin improvement, and risk avoidance. The risk with this model is that over time, the management team is comprised of people that Box CEO Aaron Levie has described as: “insiders who know what is impossible.” The new definition of ‘combine’ is aggressive externalizers of business processes up and down the stack: think of Amazon opening its infrastructure and provisioning expertise to tens of thousands of startups as part of its hugely successful Amazon Web Services. How many traditional CIOs would have thought they could transform internal IT assets into a business now valued at $19 Billion? The answer, again according to Levie, is “outsiders who think anything is possible.”

“Industries are transformed by outsiders who think anything is possible, not by insiders who thinkthey know what is impossible.”

—Aaron Levie, Box.net Founder

By embracing the new model of continuously evolving and creative ecosystems, APIs, and other combinatorial techniques such as crowd funding, accelerators, and services in the cloud, tomorrow’s CEOs – who grew up with these models – will move beyond the current limitations of ‘open innovation’ and create the next wave of great companies, those who reconfigure their roles and combine external sources of competence and value creation with new players inside and outside their organizations.. We all need to be prepared for it.

Change is good. Change is the new stable. Stay tuned: There’s more to come…

Georges Nahon

CEO, Orange Silicon Valley

October 2013

San Francisco,

New Story for Product Crowdfunding

How Financing Product Development is Becoming More External

“Larger companies are starting to see the opportunities in crowdfunding, especially in the market testing arena.”

Crowd funding has been making waves recently. Top products on the popular platforms Kick-starter and IndieGoGo have exceeded all expectations in helping entrepreneurs raise money to build new products and deliver new services. More than just a way to off-set inventory risk and raise money; crowd-funding represents a new model of engagement between entrepreneurs and the communities that support them.

As Jeff Howe put it at Social Strategy Talk, “Crowd funding provides a final, persuasive link in the crowd sourcing argument.”

As a caveat, while the benefits of crowdfunding are numerous when it works well, the process can betray consumer trust when expectations are not met. There aren’t yet protections preventing impossible projects from getting funded, when delivery on the original promise is not likely to happen.

That said, larger companies are starting to see the opportunities in the crowdfunding space, especially in the market testing area. There are also areas of collaboration emerging through new players, such as Dragon Innovations, who have created their own crowdfunding platform in the hopes of connecting entrepreneurs with larger enterprises.

The Players

Kickstarter is arguably the largest and most successful crowdfunding website.

Indiegogo is a rising star and competes head to head with Kickstarter.

Ubuntu Edge is the most recent crowd-funding superstar. While not getting close to their $32 million pledge goal, they have raised $10.6 million to date.

Ouya game console is a a microconsole running its own version of the Android operating system.

Pebble watch is a smartwatch developed by Pebble Technology and released in 2013 that was funded by raising money via the crowdfunding platform Kickstarter.

Dragon Innovations is a recent entry in the crowdfunding space that addresses the problem of “vaporware” and brings the enterprise in collaboration with the entrepreneur.

“If Kickstarter had a booth that displayed all the products that had been funded there, it would be the most impressive and creative display on the [CES 2013] show floor.”

—Adrianne Jeffries, The Verge

Why now? Why successful?

The unsung hero of modern crowdfunding is the consumer. While major platforms (e.g., Kickstarter and Indiegogo) and big winners (e.g., Pebble, Ouya) have received the lion’s share of attention on the subject, it’s changing consumer habits that are driving this evolution in product development and funding. Consumers are now more than ever willing to discover, investigate, contribute to the design of, and fund new products online often sight unseen. And when they contribute funds early, backers have a vested interest in seeing a successful product come to market. Their input into the product development and design is much more pronounced, and product designers have a channel of dedicated customers to bring difficult decisions before.

An alternative to traditional tech investment?

Recent record shattering online campaigns have drawn additional attention to crowdfunding and begun to make it an attractive alternative to traditional funding mechanisms. At $10.2 million, Pebble’s Kickstarter campaign was roughly double the average series A deal in the United States1, and in aggregate, “4.6 million people have pledged over $747 million, funding more than 46,000 creative projects” on Kickstarter2. This is all without sacrificing a single share of equity, or even going through the arduous process of becoming a real company. As funding amounts begin to climb, and consumers continue to gain trust in these platforms, entrepreneurs will turn to them more and more as a realistic means to raising significant funds.

An alternative marketing tool for the traditional enterprise?

Another recent crowdfunding record was the notable success of the Veronica Mars Kickstarter campaign. Though the crime show about a teenage girl was cancelled six years earlier, its creator Rob Thomas attempted to resurrect it via crowdfunding. The Kickstarter campaign managed to raise its goal of $2M within a record 12 hours. Ultimately, it gathered $5.7M through over 91,500 backers.

More signs of the emergence of the enterprise in the crowdfunding space?

Success has been one of the failures for many of Kickstarter & Indiegogo’s more high-profile projects, with the Pebble Watch a glaring example of this “vaporware” (defined as “hardware projects that never materialize or arrive much later than their creators promised”)3. Dragon Innovations just launched its own crowdfunding platform with the goal of addressing issues with vaporware, such as manufacturing and distribution. It has also partnered with larger companies like GE and Qualcomm to facilitate collaboration with entrepreneurs at many different levels be it R&D, design, supply chain, manufacturing, or marketing.

Estimated number of active crowdfunding platforms worldwide went from 283 in 2010 to 536 in 2012.

Large Companies Crowdfunding

Procter & Gamble

working with CircleUp

General Mills

working with CircleUp

General Electric

partnering with Dragon Innovations

Qualcomm

partnering with Dragon Innovations

Key Points

1. New Model for Customer Engagement. More than just a tool to reduce inventory risk and get increased access to capital, Crowdfunding is a new way to engage dedicated customers during the product development lifecycle.

2. Partially Solves the Funding Gap. The exponential growth in consumer willingness to participate in crowdfunding has enabled enterpreneurs to bring new products to market that would traditionally have difficulty raising venture capital.

3. Inherently Social. Crowd-funding campaigns are made successful by engaging a network of dedicated supporters. Whereas social media marketing is traditionally seen as a separate endeavor to product development, in crowd funding, the two work in concert.

4. Entirely Different than Traditional Funding. Crowd-financed campaigns often promise the delivery of a product at a later date. Thus, crowd-funding allows entrepreneurs to off-set inventory risk by collecting money before production occurs. Additionally, entrepreneurs aren’t sacrificing equity to raise capital. Instead, they’re validating the market, and connecting with passionate, early adopters.

5. Enterprise Opportunities in Crowdfunding. No longer strictly for small businesses or lone entrepreneurs, traditional companies are seeing the marketing opportunities in crowdfunding campaigns.

Reconfiguring the Playing Field through Radical Adjacency

Videogame Companies Revolutionizing the Toy Industry

$1 Billion at a Time

“A radical adjacency is an acquisition or market move that takes the buyer or executing company into areas where its management has no, or little, current experience.”

—Nick Vitalari & Haydn Shaughnessy, The Elastic Enterprise

There is a revolution in the toy business and it isn’t being led by Mattel or Hasbro, but by the likes of Activision, Disney Interactive, and Rovio. The toy industry and gaming industry, both multibillion dollar markets, have been vying against each other for the mindshare and dollars of entertainment-seeking customers for years. As consumers become more spoiled for choice and more discerning about where they spend their entertainment budget, the necessity of growing business revenues in such a challenging environment is forcing surprising innovation. But while the traditional toy players have been slow to implement lessons from interactive entertainment, videogame makers have not been so shy about disrupting the home turf of their toy counterparts, and with surprising success. The shifts in the toy business provide relevant examples of radical adjacency at play.

The Players

Activision is an American video game publisher and one of the world’s fi rst independent developer and distributor of video games for gaming consoles.

Disney Interactive is one of the world’s largest creators of high-quality

interactive entertainment across all platforms.

Rovio Entertainment is an industry-changing entertainment media company and creator of the globally successful Angry Birds franchise.

Robot 11 enables new play patterns that surprise and delight kids and adults alike through the usage of innovative hardware + firmware + software technology.

DAQRI is the world’s leading augmented reality developer, providing custom software and creative solutions to clients across a broad spectrum of industries.

Sandboxr empowers everyone to customize, print, and own 3D creations, providing an experience unlike any other.

“We knew that the simple, but magical idea, of bringing your toys to life in a video game could change both the video game and the toy industries, and more importantly, change the way kids play”

—Activision CEO Eric Hirshberg

In 2011, a major disruption emerged in the toy industry, and from the unexpected of sources; a pre-eminent videogame publisher, Actvision, rolled out an innovative hybrid toy-videogame product wherein physical toys were plugged into a game console and communicated via NFC to virtualize the toy within the game environment.

Within 12 months, Activision had sold more than 50 million Skylanders toys and its hybrid videogame-toy line had generated $500 million revenue. Just a quarter later, that figured moved to 100 million toys and $1 billion in sales, respectively. Now, just under two years from the birth of this franchise, Activision has recorded over $1.5 billion in sales, and Skylanders became the best-selling line of action figures in the US and Europe in both 2012 and 2013. The explosive growth was difficult to ignore.

A year after Skylanders’ debut, Disney announced that it too would be entering

the augmented toy business. But it wasn’t Disney Consumer Products (the business unit responsible for toys, clothing, and other merchandise) that was behind this initiative; they had nothing to do with it. Rather, it was Disney Interactive, profitable in only 1 of the last 12 quarters and desperate to turn itself around, that was leading the charge, and ironically hoping to save its digital business by making physical toys. It announced Disney Infinity, a broad suite of toy products that would interact with games for the Playstation 3, Xbox 360, and Wii U.

The company has high expectations for Infinity, which launched August 2013. With the business model and pricing, it’s easy to see why. A starter set, which includes 3 toy figures, a base to connect to the console, and the videogame itself, retails for $75, with subsequent figures retailing for $10-$20. Disney hopes that its Infinity customers will purchase at least 6 toys per user, which is the norm for Skylanders buyers, resulting in $120-$140 RPU.

As a new entrant, though, Disney is not alone. Months after Disney’s Infinity announcement, Angry Bird’s maker, Rovio, proclaimed it was launching a new Angry Birds Star Wars game for iPad and iPhone that would use physical toys to enhance the experience. Dubbed Angry Birds Telepods, these toys will be manufactured by Hasbro. However, as a hedge, Rovio designed the toys to be supplementary to the mobile gameplay, rather than making them integral to the experience as in Disney Infinity and Activision’s Skylanders. These toys are also cheaper and do not employ NFC chips to enhance the toys. But the move is significant nevertheless, as it marks a move towards a convergence of physical and virtual entertainment, with a mobile game company making a push into the consumer toy market.

Augmented toys and the disruption that consoles and tablets can bring to the toy industry are still in their infancy. But several companies are hoping to build platforms that videogame or toy manufacturers can leverage to open up whole new worlds of interactivity with physical goods.

Robot 11 is a Silicon Valley startup developing next generation augmented toys using embedded Bluetooth 4.0 to wirelessly connect toys to games and other toys in its ecosystem. DAQRI, an LA-based augmented reality startup, is creating a platform called Enchantium to enable augmented reality experiences with toys and mobile screens. Both startups are currently looking for partners with whom to deploy their platforms. And with Actvision and soon Disney showing how mammoth this opportunity is, more entrants are sure

to emerge.

Indeed, the competition can come from the unexpected of places. The advent of more affordable 3D printing portends a shift that could have wide ranging impact in a number of business and service areas. And the toy industry is one of the poster children of this upcoming revolution. As the market size could ostensibly whittle down to a “market of one”1 (as people create their own custom-designed toys in-house, literally) and the cost of toy manufacturing becoming negligible, the competition starts to intensify and emerge from the unexpected of places (e.g., in addition to Activision, imagine Coke or Volkswagen as a toymaker). This example has focused on the toy industry, but the notion that the game has changed resonates with enterprises in other industries, as strong Haydn Shaughnessy said it well, “radical adjacency becomes easier and more necessary.”

“The Skylanders franchise became the first kids’ video game intellectual property to cross the $1 billion mark in just 15 months, and I think we are still just starting to realize its potential.”

—Toys for Bob President Paul Reiche III

Key Points

1. New Players: Competition in the toymaking industry will intensify

as companies from adjacent areas emerge to become toy manufacturers.

2. Connected: This new breed of toy is not meant to be played in a vacuum. They all connect to a videogame platform, whether that is a Playstation 3, Xbox 360, Wii U, or an iPad. Their value is inseparable from the consoles and tablets they are meant to connect to.

3. High margin: The value and collectability of these toys allows their manufacturers to drive higher prices and profit from higher margins. These new players aren’t entering the toy market at the ruinous low end, but creating a whole new tier of top end toys

.

4. Smarter: These new toys carry NFC chips, with read/write memory. This enables possibilities for more sophisticated interactions in the future beyond just plugging into consoles for extra characters.

5. Rapid growth: Just 15 months removed from its launch in November 2011, the Skylanders toy brand had already sold 100 million toys and generated >$1billion. Analysts expect the category to rise even faster with Disney’s entry and the yearly rollout from Activision and upcoming players.

Rewriting the Story

Business with Big Data

How Internet Firms Are Joining in the Golden Age of Television with Big Data

“We’re on the cusp of something that will change television forever, our view is that over the next couple of years as Internet TV really grows, people will look back and say that this was the turning point.”

—Reed Hastings CEO of Netflix, in an interview at Bloomberg’s New York headquarters

Internet firms are entering the closed world of premium content production with data-driven approaches resembling that of website and app creation. This rapid iterative process relies heavily on data-analytic methods—be it leveraging existing information and usage metrics about the end user or explicitly soliciting user feedback during the creation process. For example, Netflix knew that its original programming series—“House of Cards” would be a hit as soon as they commissioned it. How did they manage to do this? Using data from 33 million subscribers worldwide based on the content they viewed, paused, searched, rated and by the time of day! We are at the very early stages of the democratization of content creation with a Silicon Valley approach to Hollywood.

The impact of data-driven decision making extends beyond content. As Amazon and Netflix have shown, it has allowed them to more confidently insinuate themselves in businesses not typically in their wheelhouse. The new ability for enterprises to have data at their fingertips, enabled by the SMAC stack1 (Social, Mobile, Analytics, and Cloud) diminishes the barrier to entry to adjacent fields. Indeed, it seems to be a business hazard to not move to adjacent areas. In addition to the Netflix (House of Cards) and Amazon (Amazon Studios), Microsoft’s recent purchase of Nokia is indicative of this imperative.

The Players

Netflix is the world’s leading Internet television network

with more than 37 million members in 40 countries enjoying more than one billion hours of TV shows and movies per month, including original series

Amazon Studios is developing feature films and episodic series in a new way, one that’s open to great ideas from creators—and audiences—around the world.

The YouTube Original Channel Initiative is a 100 million dollar program funded by Google to bring original content onto YouTube. The original channel initiative was also meant to kick start Google TV.

Epagogix brings together expertise in risk, finance, artificial intelligence and

film analysis to create innovative tools and solutions for the hard decisions that senior company directors need to make.

Circle of Proven Success

Netflix determined that the overlap of these three areas would make “House of Cards” a successful entry into original programming.

“We don’t have to spend millions to get people to tune into this. Through our algorithms we can determine who might be interested in Kevin Spacey or political drama and say to them, ‘You might want to watch this.’”

The traditional content development model in the entertainment industry is based on secrecy and personal connections. Typically, programming is commissioned and developed based on intuition and hunches as opposed to algorithms. The possibility for a writer to put together a pitch and a script for the pilot episode and get it green lighted by someone in a traditional studio is a very difficult proposition. Most writers either employ agents (with extensive rolodexes) or have previous credibility from other shows and thereby insider status to move their projects forward. This decades-old closed world creation process is now getting some welldeserved competition from technology companies with big coffers. These technology companies are attacking the original content production problem in their own unique ways. And this move is powered by algorithms.

As mentioned earlier, Netflix focuses on using data consumption patterns from their existing video catalog to predict the likelihood of success for a piece of original content. Netflix has been a pioneer in using big data with entertainment content - in 2006, they opened worldwide contest to try and get outsiders to improve their existing movie recommendation algorithms (The $1 million prize was handed to a team in 2009 who improved the predictions by 10%).

Various discrete pieces of data goes into their analytic system - plays, rewinds, fast-forwards, pauses, ratings, searches, geo-location data of viewer, end-user device, time of day and week, metadata from third parties such as Nielsen and social media data from Facebook and Twitter. It is even rumored that Netflix analyzes what’s going on the movies themselves - scenery, colors, music and volume to better understand what the viewers like. The results have been spectacular for Netflix – the original programming has contributed significantly to user growth and retention for the service that was under pressure from expiring content deals with studios couple of years ago.

Amazon’s approach is more focused on crowd-sourcing original content and soliciting actual viewer feedback during the content creation process. The submission process is very democratic - anyone can submit a proposal and Amazon will respond within 45 days with an answer. If accepted, Amazon pays $10k and then works closely with the individual to turn the concept into a pilot. The pilots are then completely open to the public and Amazon uses data from actual viewer feedback to proceed to the next steps. As of July 2013, Amazon has agreed to option fi ve of fourteen pilots (after selecting from thousands of scripts that were uploaded to its site). True to their technology roots, Amazon is keen on figuring out a way to get viewer feedback on shows even before a pilot is created. Google has spent more than $200 million to create the “Original Channel Initiative” initiative for YouTube.

“What we do is to find the perfect show for an audience. I don’t want them to just get hooked. I want to get them strung out.”

1. Silicon Valley companies are invading the realm of Hollywood with new technology and data driven approaches.

2. Big data and machine learning technologies along with massive

user data can help make better investment decisions for producing original content. Actively soliciting and leveraging explicit and implicit user feedback is a key component in rapid learning.

3. Content studios will increasingly use risk management and artificial intelligence techniques to optimally allocate their capital to decide which projects to make, which to drop and to enhance the net box office value.

Traditionally, brand marketers have worked with advertising agencies or direct sales force of top internet properties on old-school metrics such as guaranteed impressions. The media buying and selling has been traditionally done through face to face meetings or phone calls. There is a new day coming, and it is coming quickly. Today, the online ad industry is shifting towards programmatic buying. As Omnicom CEO John Wren has put it: “Digital buying of media is done by machines —as if you’re standing on the fl oor of the Nasdaq—as opposed to the traditional media shop.” It should come as a surprise to absolutely no one that this shift to mealtime bidding is coming alongside the Big Data wave.

As a result of this convergence, marketers can now bring and blend their own data about their customers (e.g., CRM data from the customer data warehouse), and also leverage a growing middle layer of third-party data modelers with additional online data about existing and potential customers, often sourced from cookies and other ad targeting mechanisms. Using the resulting data mashup, marketers bid in real-time (so-called real-time bidding, or RTB) for getting specific engagement across web properties and real time channels, be that banner ad, video ad, Like, Share, or Tweet.

The Players

HootSuite is a leading social media dashboard to manage and measure social networks.

LiveRamp enables marketers to use their CRM data such as demographics and purchase history to target online display.

But that’s not all. The third leg of this perfect storm is the drive of brands to be story-tellers, the opportunity to engage in the social conversation as a participant is proving irresistable, because your competitor is probably already doing it. This is in large part to

new formats from publishers: major web properties such as Forbes, Quartz, even the New York Times are allowing brands to generate material that looks like editorial content – the kind that readers share over social media, where it becomes the marketer’s alchemy.

“…it’s time to reinvent measurement. As brands go real-time, as they sift through multiple data sources, and generate rich content that is designed for liking and sharing and retweeting…”

“earned media.” In this environment, the publishers’ role is not just to generate content but to “make sure that our marketers put real effort into what they put on the site, and

understand the importance of coming up with accurate, useful information,” as Forbes ‘chief product officer’ Lewis Dvorkin told David Carr recently. All of the above says it’s time to reinvent measurement. As brands go real-time, as they sift through multiple data sources, and generate rich content that is designed for liking and sharing and retweeting they are, like Dorothy, no longer in Kansas—and are in a state of need for analytic tools, and there are many to choose from. So all good? Not really. Recently, CMOs were asked about their progress toward measurement of this new world: only

one in four agreed that they are able to measure their social activities.2 CMOs are also reporting unpreparedness in terms of marketing for multiple digital channels and growth of connected devices. To address various pain points, CMOs are preparing to invest

into big data marketing analytics solutions. One quarter of CMOs are dedicating 41% to 60% of resources to analytics and digital marketing.

So the hunt is underway. Thus CMOs are gearing up to build teams that are quantitative or data-driven: Data Science comes to Madison Avenue.

The payoffs from the new school of Quantitative Marketing (QM) becomes clearer every day:

• help brand marketing divisions to optimize marketing budget spend

• reach across multiple digital channels and engage with customers

• redistribute the wealth (both in market share and EBITDA) away from the front-runner platforms such as Google/Yahoo/Microsoft/Facebook/ AOL (now with 64% of online spend)

To help with the measurement crisis, traditional suppliers are hearing the call and taking action: IPG has announced the creation of its MediaBrands Publishing division in July 20136 that would provide services to brand marketers. Some see the recent merger between Public’s and Omnicom as a drive to scale in data driven analytics and programmatic buying as a viable alternative to Google and Facebook. These are the harbingers of a transformation in the digital advertising ecosystem to cater to the needs of quant-driven CMOs.

Publishers Offering Native Advertising Products

WHILE NOT EXHAUSTIVE, A REPRESENTATIVE SAMPLING OF PUBLISHERS CURRENTLY OFFERING NATIVE ADVERTISING PRODUCTS INCLUDE:

Key Points

1. Real-time Content: In order to engage with their online user base across real time channels and different devices, brand marketers are generating content for real time channels and emerging as media publishers.

2. Offline to Online: Brand marketers are bringing offline customer data from tools such as CRM and leveraging online user data such as behavioral to reach existing and potential customers online.

3. New Streams: Today revenue from digital advertising activities is concentrated at the top of the pyramid. Top web properties rely on directs sales force for generating majority of advertising revenue. Introduction of Key Points programmatic marketing and brand marketers emerging as content publishers would impact this concentration of advertising revenue.

4. Engagement Data: Collective data about customer and results of engagement metrics will drive the sales funnel. Thus for brand marketers it is crucial to get a handle on data enabled quantitative marketing techniques.

Application Programming Interface

(API): Externalizing the Business

at Scale

API’s Are the New Way Forward for the Combinatory Enterprise

“An API strategy is becoming a must…in terms of speed to market with new products, maximizing business development, and product development opportunities.”

—Steve Kurtz, VP Business Development, USA TODAY

Application Programming Interface (API), a tech term predominantly used by engineers in giant software houses, is a powerful asset that has moved up to executive suites across multiple industries. APIs enable organizations to collaborate with players in their ecosystem smoothly to increase influence, and because of their lightweight nature, can scale massively very quickly. A good example is the ubiquitous Google Maps, one of the fi rst APIs. Silicon Valley-based startups like Mashery, Layer7, 3scale, and Apigee understood the big opportunity in API management and educated potential customers and recorded success stories.

Today, everybody’s doing it. Even non-IT industries like Walgreens (retail pharmacies), who exposes their image services via API to any developer who is writing photo based mobile application. APIs are the new way forward for the combinatorial enterprise driving efficiency in internal and external operations, and engaging with their ecosystems in a friction less way.

The Players

Mashery is the world’s leading provider of API technology and services.

Layer 7 is a leading provider of security and management products for API-driven integrations spanning the extended hybrid enterprise.

The new genre of APIs are based on ubiquitous web technologies; easily

understood by developers, they replace expensive and time consuming SOA (Service Oriented Architecture)or EDI (Electronic Data Interchange) integration. In a world where Everything is- a-Service, simply publish an API, provide the documentation, and with a little code by a developer, it’s working. APIs are what makes a platform a Platform. And because they reduce business friction by making it easy for software systems to work together, platforms are at the heart of the new vertical model of scalable business.

PayPal, which has disrupted the trillion-dollar credit payments business, can be connected through an API to any ecommerce checkout website, replacing Visa as the payment method. APIs have become the fundamental component for externalizing business processes and data flows to internal and external stakeholders. An API is NOT just about web-service providers engaging developers, it’s about organizations like the General Motors running their internal operations more efficiently as well as working with suppliers more effectively.

It is not easy to estimate the return on investment from implementing API strategy. But, we can safely identify API-fication opportunities in two cases

(a) When there is huge recurring budget for software integration internally; or

(b) when there is a new product or service introduced which can be used/invoked by other players in the ecosystem. APIs make horizontal incumbents able to compete in the new world by connecting to radical adjacencies, and for the vertical challengers, they are the preferred method for disruption of closed markets.

“Incumbents tend not to cannibalize themselves through disruptive innovation not because they are poorly run, but precisely because they are well run.”

—Marc Andreessen, on creativity and new opportunities.

Key Points

1. New Valley: APIs by themselves cannot create any new service or

value, the data API expose, the ease of use by developer or partner creates new business value.

2. Efficient Interaction: APIs are not always intended for external users to interact with enterprise. APIs can enable efficient interaction between different business units.

3. Investment Goals: APIs may not justify return on investment goals; thorough examination of information flows in the organization and budgets spent over the years may give some fair idea.

4. Web Platforms: It is important to embrace “Web as a platform” paradigm vs systems communicating with proprietary methods. The web allows an organization to expand its innovation horizon and makes the organization relevant.

The CIO’s Dilemma

Managing Silo Apps in the Distributed Cloud

Connecting Cloud Silos by API Pipes

Today many enterprises are using multiple applications in different clouds to run their business. The cloud provides fl exibility, fast deployment, and lean IT, that’s good news. But these cloud applications don’t necessarily talk with each other – not so good news. In the cloud world, the applications are in different Data Centers, sometimes different geographic regions, and architected differently, each with their own controls for identity, access, and policy management.

Welcome to the New Silos

This is an old problem in new shapes: it existed even with on-premise packaged software. To address this issue in an on-premise world, enterprise software vendors like Oracle, IBM, and TIBCO evangelized Service Oriented Architecture (SOA) as key architecture principle and Enterprise Service Bus (ESB) as the messaging bus connecting various services & applications. More stuff, more vendor lock-in. A recent survey of CIO’s showed 67% of them reported issues integrating data between cloud applications. So what’s the way forward towards the goal of Combinatorial IT? One cloud’s applications talks with any other cloud application via API’s. This is the new value in IT: making gateway tools that economically and effi ciently connect applications service, data, compute, storage, and network.

From a business value perspective, these connect the enterprise to its ecosystem for delivering products and services between partners and customers. In the larger context of the new era of SMAC (Social, Mobile, Analytics & Cloud), enterprises need to be more agile, and CIOs will be hard-pressed to lock-in themselves with a single vendor stack. Those that don’t lock into one vendor will become digitized faster than their contemporaries that remain behind. Savvy CIO’s are preparing to work with many smaller vendors (micro-specialization) – the trend to watch is whether partnering with many is much faster and easier than waiting for large enterprise software vendors to catch up.

The Players

New Players:

MuleSoft provides the most widely used integration platform for connecting SaaS and enterprise applications in the cloud and on-premise.

Twilio empower developers to build powerful business communications by enabling phones, VoIP, and messaging to be embedded into web, desktop, and mobile software.

Okta is an enterprise grade identity management service, built from the ground up in the cloud and delivered with an unwavering focus on customer success.

IFTTT is a service that allows users to connect different web services (e.g., Blogger, Facebook, Evernote, etc.) via “recipes” based on cause/ effect relationships.

SAP is a world leader in enterprise applications in terms of software and software-related service revenue.

Salesforce provides enterprises with social and mobile cloud technologies, including sales and CRM applications.

Interview:

John Hagel

Connecting Internally and Externally

With Narratives

Silicon Valley’s resident Strategist discusses opportunity based narratives as a way to connect with ecosystems—and actualize them with authentic actions.

John Hagel III is the Co-chairman of the Deloitte Center for the Edge. John is a recognized thought leader on the intersection of technology and strategy. Throughout his career, he has influenced corporate strategies as a management consultant, author, speaker and entrepreneur.

We talk about how emotionally engaging stories are, and that’s true. But, think about the emotional impact of narratives – over history, millions of people have given up their lives for a narrative – there’s an emotional engagement that far exceeds stories, in large part because the narrative calls for participation and makes clear how and where you as an individual can make a difference. In a time of growing uncertainty, narratives become especially valuable. They fight our natural tendency to pull back and focus on the short-term. Instead, they provide a compass and a dependable foundation that can orient us to a much longer-term horizon and pursue proactive initiatives, rather than simply reacting to the latest event. Also, at a time when more and more options are competing for our attention, they can provide us with a useful filter to determine what is truly important.

O - In light of the uncertainty that companies operate under (e.g., not know where their next competition will emerge from), you advocate the use of narratives. Could you explain the difference between stories and narratives?

JH -There are two key differences. First stories need to be self contained– they have a beginning, a middle and an end. Narratives in contrast are open-ended, the resolution is yet to be determined. Second, stories are about the storyteller or other people; they are not about you, the listener. In contrast, narratives are ultimately about you, the listener – the resolution of the narrative hinges on the choices, decisions, and actions that you take. So, how will the narrative be resolved? It hinges on you and how you act. Narratives can emerge and evolve at many levels – the individual, an institution or a broader social arena. Some of the best known narratives at that third level would include religious narratives, like the Christian narrative, national narratives like the American narrative or regional narratives like the Silicon Valley narrative. All successful social and political movements have been driven by powerful narratives.

O - You make the distinction between threat based and opportunity based narratives. How can companies create more opportunity based narratives & mindsets within their organizations?

JH - Opportunity based narratives are far more effective in fighting the cognitive biases that tend to prevail in times of mounting performance pressure and accelerating change – the tendencies to magnify perceived risk and minimize perceived rewards, to shorten time horizons, to adopt zero sum views of the world (if you win, I lose) and to erode trust. If there is a compelling opportunity ahead, we tend to magnify perceived rewards, we’re more willing to work for long-term goals, we adopt positive sum views of the world (win/win mindsets) and we’re more willing to collaborate with a larger and more diverse group of people. At an institutional level, the key requirement in framing a compelling narrative is to focus on the broader constituency you are seeking to reach beyond your own employees. What is a compelling opportunity for them?

Too often, I hear executives talk about the “narrative” of their company in terms of their humble beginnings, the struggles they experienced and the success they have achieved – but it’s all about them. The real question is what is the opportunity for the people you are trying to reach as an institution? If you can frame this in a compelling way, it will motivate them to engage with your company in a much deeper and impactful way and in turn that will motivate your employees to strive to new levels of performance because they can see how they are making a real difference.

“You can’t just sit down and write a narrative. Narratives emerge out of the day-to day actions we take. We have to live the narrative.”

Simple example: Apple’s narrative which is tightly summarized in the slogan “Think Different.” Unpack the narrative and it suggests that for the first time we have a set of technologies that make it possible for all of us to break out of the conformity that mass society imposes upon us and to finally be able to express our unique individuality and potential. But it requires each of us to “think different.” It’s an inspiring opportunity based narrative that explains why so many Apple customers tend to have an almost religious attachment to the products.

But here’s the catch. You can’t just sit down and write a narrative. Narratives emerge out of the day to day actions we take. We have to live the narrative. In Apple’s case, think back to the two founders of the company – Steve Wozniak and Steve Jobs. Can you imagine two individuals who in their daily lives could have better epitomized what it means to “think different?” They lived the narrative. So, companies who want to craft a compelling opportunity based narrative need first to understand where and how they can make a real difference in the lives of the people they are trying to reach. This requires them to go far beyond the products or services they are offering and imagine where and how these can change the lives of their customers. Then they need to identify the actions that they can take on a daily basis to bring to life this opportunity and show the impact it can have. Narratives emerge out of actions.

O - What are some of the key indicators that an organization is using narratives to thrive?

JH - There are several indicators. First, as suggested above, track the actions within the company that can most powerfully illustrate the power of the narrative. Are the actions truly consistent with the desired narrative? Second, aggressively scan relevant arenas for examples of customers or others outside the company who are targeting the opportunities framed by the narrative and both tell and learn from their stories. What choices and actions did they pursue and what was the impact? How could they have achieved even more impact? What could the company do to help them achieve even more impact?

Finally, focus on tracking operating metrics that matter to the company that should be impacted if the narrative is taking hold. Typically, one of the key metrics is some version of the customer advocacy measure – how willing are customers to recommend a company’s products or services to others and how active are they in actually making those recommendations?

O - Finally, what is the role of digital technology in amplifying the power of narratives at the enterprise-level?

JH- Digital technologies play a powerful role in amplifying both the reach and richness of the narrative to relevant audiences. While stories are different from narratives, stories can significantly enhance the credibility of a narrative by showing in specific circumstances how and why certain choices and actions helped people to achieve more of the opportunity framed by the narrative. Stories can also help us to learn how to better achieve the opportunity by showcasing both mistakes and innovative new approaches.

In this context, digital technology provides a powerful set of tools to communicate stories to reach a much broader audience with much more texture to the story – think for example of the power of video to tell a story rather than

just text. Now individuals can make their own videos about their experiences and share them with others, rather than just having a company produce an expensive video.

We are just beginning also to understand the power of transmedia to frame both stories and narratives more effectively – telling a story or narrative not just within one medium, but bridging across a broad range of media to create a much richer experience of the story or narrative. Digital technology makes it much easier to integrate across many different media to engage an audience in a more powerful way.

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Interview:

Haydn Shaughnessy

The Platform Approach to Business

Conversations with leading CIOs and Innovation Officers brings us to the Fluid Core

Haydn Shaughnessy is a 25 year veteran of innovation practice and thinking having started his career managing downstream satellite communications projects for the EU. He has worked as both practitioner and writer,

combining the two to bring fresh perspectives to how we think about organizational change. His latest work, The Fluid Core, based on interviews with 30 leading CIOs, is a reassessment of strategy in the age of digital transformation.

O - You interviewed 30 CIOs and Chief Innovation Officers for you recent piece Fluid Core. In it you explore the technology-driven changes creating a new hierarchy of needs and altering organizations. How is this new hierarchy of needs different from what existed before? What impacts does this hierarchy have on the management of technology/IT?

HS - We need to get away from the idea that there is any single response to the challenge of innovation ad that, to date, is how enterprises have tended to regard it – if only if we did x or y...By the way, even in that context a lot of change comes about because of the passion of specific employees rather than because an executive team that is intent on expanding the portfolio of capability in the company. This new hierarchy of need should encourage companies to see the breadth of change they need to address. It is not just a challenge for IT, though I think smart IT executives have many of the answers. Specifically IT has to think: what platform can I create to help my company respond to a broad-based set of challenges? It needs to take this holistic view and to think of a strategic platform that allows change to take place across different parts of the business.

O - You see competition that is at once more intense and much less predictable giving rise to “radical adjacency.” Why does this need to be a core competency for a company to thrive?

HS - Companies that succeeded through the recent recession did so in part because they were able to enter new markets in a radical way – Apple into smartphones, Amazon into Cloud, now Nike into wearable computing. They were also able to grow those markets rapidly. Traditionally companies have been told to focus on a core competency but we see successful companies now taking a very fluid view of the core – hence fluid core strategy.

The trend is clear and the reason it is now a trend is because so many markets, technologies and competencies are converging. Initiallymusic and the web, then computing and smartphones but also organic chemistry, displays and solar technology, displays and just about anything in the near future, health and data. Opportunity lies at the convergence point. The fact that it lies at the convergence point also means if you do not act you are vulnerable to the adjacency moves of companies from other sectors or you get pushed out of value-added tasks into “dumber” commodity activities.

O - How can companies cultivate “radical adjacency” as a core skill?

HS - To compete you need to be able to create or augment your competency very quickly. There are numerous ways of doing that. Companies like CISCO, Google, Salesforce. com, Amazon typically use an acquisition strategy buying up smaller companies for the talent and IP.

There are other routes. A lot of companies now externalize a good deal of what used to be thought of as core activities. Take product design for example. It is core to innovation and yet we now have a new breed of company that specializes in taking on your product and interface design for you – Frog and Fjord for example.

“Externalizing a core function like developing new ideas, and using ecosystem influence to understand customer reaction and market potential, even market ramp up, frees executive mindshare for adjacencies, and executive mindshare is still the key component.”

Many seemingly essential IP related activities can be externalized and I use the term externalize to differentiate it from outsourcing. This is not like giving away performance of a function to a Business Process Outsourcing (BPO) firm. Here is the difference. For example: You do not outsource your ideas’ creation when you put an ideas’ platform up on the web – you externalize it. You become a part, a leading part, in a new ecosystem of activities. Externalizing a core function like developing new ideas, and using ecosystem influence to understand customer reaction and market potential, even market ramp up, frees executive mindshare for adjacencies, and executive mindshare is still the key component.

An equally important answer lies in developing a platform approach to business. That means focusing on developing a highly adaptive, core IT/business capability where people are comfortable with integrating hardware, software, services and devices, and are good at plug and play around application programming interfaces, know that scale is all about the ecosystem and about creating good partnerships at minimal business friction. And we could all learn a lot more about how to be more peer-like in our approach to management. Managers still see their jobs as command, where fluid fore and radical adjacency require enterprises to think more in terms of how to attract and lead ecosystems of partners. It is a totally different skill set.

O - Why will recruiting people who are self-educating become a critical talent management objective?

HS - Change is not only fast, it is wide ranging. The more that enterprises become integrated with external platforms, for example Facebook and Twitter, or as Sharepoint accelerates its release cycle, or the more enterprises depend on iOS or Android for mobile application environments, the more their people will need to respond to changes in the platform in these external platforms.

Right now, for example, you could be managing innovation in several versions of Android, plus getting to know more about capabilities in the latest Android release, rewriting and redesigning for iOS 7, responding to developments in Facebook Home, or getting used to a more social version of Sharepoint. Just in these small areas of business, you need people who don’t require a training course to guide your responses and to execute. By the way, that also means a lot more decision making, and most companies are not geared around devolved decision making – so there is a challenge there too.

As we go forward we will see more change in the hardware sphere too. And already companies are having to become more social externally and to redesign marketing around social platforms. All that means the company needs people who can combine technical, creative and business modeling skills. For sure, most companies do not have enough of these people. Grab them while you can and nurture them because they are making key decisions for you.

“Change is not only fast, it is wide ranging.”

O - Why is an emerging role of company leaders that of the curator?

HS - The emerging role of company leaders is actually more varied than that suggests but it is a good conceptual way of summarizing a leader that will have the trust of the ecosystem. It is vital that leaders become more visible to their peers, and that they think of their peers as the communities of developers, content providers, entrepreneurs and solution providers who are driving change. No leader can now know the short term future – say two years out. The future of the enterprise depends on the credibility of the leader not as a charismatic figure but as a leader who has come down from the mountain and is more of a first among equals. You depend on too many small companies and creative individuals to play the old leadership game.

O - You have written that the SMAC Stack (i.e., social, mobile, analytics and cloud) is directly related to the externalization of processes. You also proffer “context” as a counterpoint to what is “core” in organizations. How can company leaders distinguish between what is “core” and what is “context?”

HS - Companies wrestle with this one but it is not as complex as it seems. For example a lot of technology companies I talk with see the difference revolving around what is patentable knowledge and what is not. Core = patents. I think that is a pretty good metric given how important patenting has become. And now that design patents have taken off in a big way, patenting will only become more important. A lot of companies still neglect IP management or become too focused on the patent instead of its exploitation. The design patent changes that, however, as it is more of a protection for a product on its way into the market.

“The value of these relationships is that the external agent is self organizing … self-managing.”

Other than that more or less anything action you can think of is context. In fact the idea of the fluid core is that it is an active management principle, actively managing the things you are good at and can become good at. You make core whatever gives you advantage now, recognizing that it is subject to change. Would you have said Apple’s core is retailing? Arguably this was its least core skill – yet retail allows it to protect margins and to deepen customer relationships, ideal for selling iTunes cards as well as devices and peripherals. Does Apple currently have a core competency in innovation? I don’t think so. But the exploitation of its 2007 – 2010 innovations required retail to become more core. That is an example of a fluid core.

O - Why is management, in the “traditional” sense, the enemy of scaling at speed?

HS - The basis for an enterprise success historically was the specialization of tasks. But when you divide tasks into more and more discreet elements you have to add supervision and management. History has also told us that when you scale a business you add management cost disproportionately and what seems to be the case increasingly is that you will struggle to find management talent. Growth in effect, becomes a battle to shed cost and by and large most companies have gone about as far as they can in that process.

The secret lies in friction-free partnerships, at scale: partnering with hundreds or thousands of developers, hundreds of content producers, perhaps in future with dozens of citizen biologists or with hundreds of engineers in their self-organizing communities – take a look at GrabCad for how that is evolving. The value of these relationships is that the external agent is self-organizing and more-or-less self managing.

“The secret lies in frictionfree partnerships, at scale: partnering with hundreds or thousands of developers, hundreds of content producers, perhaps in future with dozens of citizen biologists or with hundreds of engineers in their self-organizing communities.”

O - How will decision-making have to evolve within an organization, in order to accommodate not just an innovative framework but a trans formative one, that has a goal of “radical adjacency” in mind?

We can already see decision making being devolved by large corporations – take a look at Dell in China – and there are many reasons for it. The most fundamental is that no enterprise can now enough to operate in all the markets that it has to address. This is not just a geographical issue, or one caused by having to penetrate new markets.

Every market is becoming more fragmented because customers want to surface their own special requirements. You win if you call deliver differentiation to the niche, if you can serve the long tail. Alternatively you need to be in the hits business - have a hit product like the iPhone (which, by the way, won because the App Store meant it could deliver something special to many thousands of markets.)

The chances are you have already delegated a lot of decision making, by default. Those will be decisions around how an app is designed and how it functions, or how to respond to social media activity, or key innovations around the business. My advice is that companies need a new innovation architecture so they can manage a more delegated decision making process. I described one of these recently.

A New Lexicon for the

Combinatorial

E n t e r p r i s e

Narratives

[In contrast to stories], narratives are open-ended. They don’t have resolution; the process of unfolding. To help determine what the outcome is going to be.

C h i e f

Influence

O f f i c e r

Charged with making the art (marketing) and science (IT) of influencing and being influenced a core organizational discipline.

Native

Advertising

Advertising wearing the uniform of journalism, mimicking the storytelling aesthetic of the host site.

Combinatorial

E n t e r p r i s e

An organization with a highly asymmetric ratio of employees to ecosystem.

Externalization

The process of companies going outside their walls for functions that are absolutely central to the company’s identity and success.